Let's start with the basics:
HoldCo: Holding Company that holds assets.
OpCo: Operating Company that operates business aspects.
PropCo: Property Company that owns the property / real estate.
The HoldCo / OpCo / PropCo (HOP) model has been used by REIT's, oil & gas, hospitality and large corporate conglomerates for almost a century. We are simply using a play out of their playbook for regeneration rather than extraction.
In the last several years "tech enabled real estate companies" have also been using this model. Although not fully commonplace yet, both VC and Real Estate Private Equity are actively seeking out this organizational and investment structure.
The benefits of the HOP model are well documented but among them are: efficiency, synergy, shared value accrual, alpha and downside protection.
We designed this model specifically for Climate Finance. Basin is using this model to attract all types of capital to climate not just impact or blended capital.
At core of the HOP model is separating out the capital stack to:
- make climate projects less expensive for projects developers
- attract to real estate investors
- balance long term incentives and short term needs
Separating the use of the property from the property itself is customary in global capital and real estate investment markets. In fact, most global brands do not own the real estate they operate out of, they lease it (as an OpCo from an unrelated or sometimes related PropCo).
Rather than making the operations of the project be tied to the property as one venture, we separate out the project operations from the real estate. By treating the use and the property as two different but interrelated financial mechanisms it opens up access to and creates appeal for “agnostic and indifferent capital”: capital that invests for its own financial mandates, not necessarily for climate, carbon, nature or impact.
This model also aligns with ancient usufruct. Usufruct comes from latin: Usus (use) and Fructus (fruit). Usufruct is the right to enjoy the use and advantages of another's property short of the destruction or waste of its substance. Without getting into usufructuary law and jurisdiction we will use existing common law instruments such as leases, use agreements, easements and deed restrictions to accomplish our intended outcomes.
This is our solution to climate change: mobilizing billions or even trillions of dollars that would otherwise not invest in climate using existing tools and systems layered on top of new mechanisms.
We refer to properties or projects as deals. The PropCo / OpCo model gives us and our partners flexibility at the deal (project/property) level. It allows for customization of stakeholder interests and investor preferences as well as flexibility with expenses, timeframes and revenues. Each and every climate deal can be tailored to fit the specifics of the location and the participants while at the same time utilizing best practices from the Basin network. This model allows for effective site specific interventions, local involvement, wisdom, knowledge and benefit accrual.
HoldCo's are sometimes referred to as evergreen, perpetual or permanent. These take a long term approach to governance and management. Climate and nature, and society for that matter, need more longtermism. Shorter term decisions can still be made but happen in the PropCo / OpCo entities and balanced with the longer time horizon of the HoldCo.
There are a lot of question marks around climate change, societal coordination and response, the 2030 mark v. the 2050 goals. The Basin HoldCo OpCo PropCo model is Adaptive Capacity and can flexibly meet these questions head on.
Certain properties and projects can be short term or long term. Some can be permanent ecosystem protection. Some can be flipped and sold to fund the HoldCo's long term goals. Again, there is flexibility at the local level to structure the deal to the situs while mobilizing global and regional investment capital.
The climate.lease is specifically made for the HOP model and is designed to take properties "off the chopping block" and to "buy us time" for 10-99 years or even permanently as the case may be. The climate.lease uses the basinStack to evaluate how a HOP deal should be structured.
As we dive into the Basin HoldCo, PropCo's and OpCo's it makes sense to quickly define what Basins, Tributaries and Confluences are.
- Basin is organized according to basins aka watersheds which align closely with bioregions and/or ecoregions. These are of course all tied to physical location. We call these Basins which are used synonymously with $BASINs
- Tributaries are the Basin branded HoldCo, OpCo's and PropCo's that operate key parts of the protocol and are climate, carbon and nature real estate project joint ventures.
- Confluences are independent network participants who provide key products and services to the network and are the connection points to other ReFi mechanisms.
Whether a Tributary or Confluence the classification is the same. PropCo's will always be tied to a Basin (location). OpCo's can be tied to one or more Basins. The HoldCo is connected to it all as the main Basin.
The tributaries-and-confluences and usdbasin-refi-mechanismsections cover this in more detail.